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Williams (WMB) today announced third-quarter 2014 cash distributions from Williams Partners and Access Midstream Partners of $521 million, a $189 million, or 57 percent, increase from total cash distributions received for third-quarter 2013. The quarterly cash distributions discussed in this release are declared and received in the following quarter, as these distributions relate to the prior quarter’s cash flow.

Year-to-date 2014, Williams reported cash distributions from Williams Partners and Access Midstream Partners of $1.485 billion, a $377 million, or 34 percent increase from the same period last year.

For third-quarter 2014, Williams reported $838 million in adjusted segment profit + DD&A, compared with $618 million in third-quarter 2013. The $220 million increase for the quarter was driven by a $238 million increase in adjusted segment profit + DD&A for Access Midstream Partners. This increase was primarily the result of Williams’ acquisition of additional ownership interests on July 1, 2014. As a result of the acquisition of these additional ownership interests, the Access Midstream Partners segment includes the consolidated results of Access Midstream Partners for periods after July 1, 2014. Williams Partners’ adjusted segment profit + DD&A for the quarter declined $20 million, driven by a $45 million decrease in natural gas liquids (NGL) and marketing margins, substantially offset by a $35 million increase in fee-based revenues. The Geismar plant was off-line for both periods; however, assumed business interruption insurance proceeds for the third quarter of 2013 totaled $15 million and were included in the calculation of adjusted segment profit + DD&A. The partnership estimates that adjusted segment profit + DD&A would have been approximately $200 million higher had the expanded Geismar plant been in operation during the third quarter. The partnership expects the expanded Geismar plant to be placed into service in November 2014.

Year-to-date adjusted segment profit + DD&A was $2.376 billion, compared with $1.961 billion year-to-date 2013. The $415 million, or 21 percent year-over-year growth in adjusted segment profit + DD&A was driven by a $246 million increase in adjusted segment profit + DD&A for Access Midstream Partners and a $167 million increase for Williams Partners. The Access Midstream Partners increase is primarily the result of the consolidation discussed with respect to the third quarter. The Williams Partners’ increase includes $144 million, or 7 percent, growth in fee-based revenues compared with the year-to-date 2013 period, as well as $81 million in higher Geismar results, which include the favorable impacts of the assumed business interruption insurance proceeds.

Adjusted income from continuing operations for third-quarter 2014 was $110 million, or $0.15 per share, compared with $130 million, or $0.19 per share for third-quarter 2013. Year-to-date through Sept. 30, adjusted income from continuing operations was $458 million, or $0.64 per share, compared with $411 million, or $0.60 per share, for the first nine months of 2013.

The decrease in adjusted income for the quarter was driven by $86 million higher net interest expense, including interest associated with debt at Access Midstream Partners, and $28 million lower NGL margins, partially offset by the segment results of our now consolidated Access Midstream Partners business and growth in Williams Partners’ fee-based revenues.

The increase in adjusted income for the year-to-date period was driven by $144 million higher Williams Partners fee-based revenues and the segment results of our now consolidated Access Midstream Partners business. Adjusted income for the year-to-date period was also driven by $86 million higher adjusted results from our Geismar plant reflecting the favorable impact of assumed business interruption insurance proceeds through the second quarter of 2014, partially offset by higher net interest expense, including interest associated with the debt at Access Midstream Partners, and lower NGL margins.

Adjusted income from continuing operations and adjusted segment profit + DD&A are non-GAAP measures and reflect the removal of items considered unrepresentative of ongoing operations and may include assumed business interruption insurance related to the Geismar plant. Reconciliations to the most relevant GAAP measures are attached to this news release.

Williams reported unaudited third-quarter 2014 net income attributable to Williams of $1.678 billion, or $2.22 per share on a diluted basis, compared with net income of $141 million, or $0.20 per share on a diluted basis, for third-quarter 2013.

The $1.537 billion increase in net income during third-quarter 2014 was primarily the result of a $2.522 billion pre-tax non-cash re-measurement gain related to the consolidation of our previous equity-method investment in Access Midstream Partners as of July 1, 2014. This gain has been adjusted out of the adjusted income from continuing operations measure previously discussed.

For the first nine months of 2014, Williams reported net income of $1.921 billion, or $2.68 per share on a diluted basis, compared with net income of $444 million, or $0.65 per share, for the same time period in 2013.

The increase in net income for the first nine months of 2014 was also primarily due to the non-cash gain related to the consolidation of Access Midstream Partners previously discussed.

CEO Comment

Alan Armstrong, Williams’ president and chief executive officer, made the following comments:

“Williams’ third quarter results continued to benefit from our increased ownership of Access Midstream Partners. During four consecutive weeks in September, ACMP achieved average gross daily gathering volumes in excess of 6 Bcf per day, a volume record that drove strong financial results. As expected, Williams Partners’ lower results versus normal operations were due primarily to the Geismar outage and the first full-quarter without the assumed benefit of Geismar-related business interruption insurance proceeds.

“We expect dramatically higher results for Williams Partners in the fourth quarter and 2015. In November and December, we plan to place several major projects into service, including the expanded Geismar plant, the Gulfstar One facility and the Keathley Canyon Connector pipeline. All three of these large-scale projects are mechanically complete and are expected to generate nearly $1 billion in 2015 cash flows,” Armstrong said.

“We recently received strong customer interest in new major natural gas infrastructure projects, Transco’s Appalachian Connector and Diamond East pipelines. Both are designed to connect growing Transco markets to abundant, economically priced Marcellus and Utica supply. On the regulatory front, we achieved a key milestone with the FERC’s issuance last week of its final environmental impact statement for the Constitution Pipeline project. We’re pursuing the federal and state permits we need in an effort to begin construction as early as the first quarter of 2015. This schedule is critical to our ability to bring the Constitution Pipeline in service in time to meet the winter 2015-16 heating season in New York and New England.

“Earlier this week, we took another big step toward our goal of becoming the leading provider of large-scale natural gas infrastructure in North America when Williams Partners and Access Midstream agreed to merge. With the expected close of the merger in early 2015 and the planned dropdown of Williams’ remaining businesses to Williams Partners, we will be a large-cap, pure-play general partner with planned industry-leading dividend growth of 15 percent annually through 2017, on top of our 32 percent increase in third-quarter 2014.”

Business Segment Results

Williams’ business segments for financial reporting are Williams Partners, Access Midstream Partners, Williams NGL & Petchem Services and Other.

The Williams Partners segment includes the consolidated results of Williams Partners L.P. (WPZ). Prior to July 1, 2014, Access Midstream Partners included the company’s equity earnings from its 50-percent interest in privately held Access Midstream Partners GP, L.L.C. and an approximate 23-percent limited-partner interest in Access Midstream Partners, L.P. (ACMP). As a result of our acquisition of additional ownership interests, periods after July 1, 2014 include the consolidated results of Access Midstream Partners. Following the dropdown of Williams’ currently operational Canadian assets to Williams Partners in February 2014, Williams NGL & Petchem Services segment is comprised of various developmental-stage projects. Prior period segment results have been recast to reflect our contribution of certain Canadian assets to Williams Partners.

Williams 3Q – 2014 3Q – 2013
Amounts in millions

Segment
Profit

Adj.**

Adj.
Segment
Profit*

Adj. Segment
Profit +
DD&A*

Segment
Profit

Adj.**

Adj.
Segment
Profit*

Adj. Segment
Profit +
DD&A*

Williams Partners $373 ($7) $366 $575 $411 ($17) $394 $595
Access Midstream Partners 2,563 (2,478) 85 260 6 0 6 22
Williams NGL & Petchem (3) 0 (3) (4) (4) 0 (4) (4)
Other 1 0 1 7 (1) 0 (1) 5
Total $2,934 ($2,485) $449 $838 $412 ($17) $395 $618
YTD – 2014 YTD – 2013

Segment
Profit

Adj.**

Adj.
Segment
Profit*

Adj. Segment
Profit +
DD&A*

Segment
Profit

Adj.**

Adj.
Segment
Profit*

Adj. Segment
Profit +
DD&A*

Williams Partners $1,269 $172 $1,441 $2,065 $1,332 ($22) $1,310 $1,898
Access Midstream Partners 2,578 (2,480) 98 303 35 (26) 9 57
Williams NGL & Petchem (111) 96 (15) (15) (7) 0 (7) (7)
Other 5 0 5 23 (5) 0 (5) 13
Total $3,741 ($2,212) $1,529 $2,376 $1,355 ($48) $1,307 $1,961
* Schedules reconciling segment profit to adjusted segment profit and adjusted segment profit + DD&A are attached to this news release.
**Adjustments for Williams Partners consist primarily of assumed business interruption insurance related to the Geismar plant. Adjustments for Access Midstream Partners consist primarily of the non-cash remeasurement gain related to the change from equity-method accounting to consolidated discussed in the body of this news release. Adjustments to Williams NGL & Petchem Services consist primarily of charges related to the proposed Bluegrass Pipeline project.

Williams Partners

Williams Partners is focused on natural gas and natural gas liquids transportation, gathering, treating, processing and storage; natural gas liquids fractionation; olefins production; and crude oil transportation.

Williams received regular quarterly cash distributions of $431 million from Williams Partners L.P. during third-quarter 2014 and is expected to receive distributions totaling $438 million in November. There is a more detailed description of Williams Partners’ business results in the partnership’s third-quarter 2014 financial results news release, also issued today.

For third-quarter 2014, Williams Partners reported adjusted segment profit + DD&A of $575 million, compared with $595 million for third-quarter 2013.

The decrease for the quarter was driven by a $45 million decrease in NGL and marketing margins, substantially offset by a $35 million increase in fee-based revenues. The Geismar plant was off-line for both periods; however, assumed business interruption insurance proceeds for third-quarter 2013 totaled $15 million and were included in the calculation of adjusted segment profit + DD&A.

Year-to-date through September 30, Williams Partners reported $2.065 billion in adjusted segment profit + DD&A, compared with $1.898 billion for the same period in 2013.

For the nine months of 2014, the Williams Partners increase includes $144 million, or 7 percent, growth in fee-based revenues compared with the year-to-date 2013 period, as well as $81 million in higher Geismar results, which include the favorable impacts of the assumed business interruption insurance proceeds.

Access Midstream Partners

Access Midstream Partners reported adjusted segment profit + DD&A of $260 million compared with $22 million for third-quarter 2013, primarily reflecting our increased ownership interest in and the consolidation of Access Midstream Partners beginning in the third quarter of 2014. Williams received a regular quarterly distribution of $78 million from Access Midstream Partners during third-quarter 2014 and is expected to receive distributions totaling $83 million in November.

Year-to-date 2014, Access Midstream Partners reported adjusted segment profit + DD&A of $303 million compared with $57 million for year-to-date 2013. Year-to-date 2014, Access Midstream Partners’ cash distributions to Williams total $194 million.

Williams NGL & Petchem Services

As previously mentioned, following the dropdown of Williams’ currently operational Canadian assets to Williams Partners in February 2014, Williams NGL & Petchem Services segment is comprised of various developmental-stage projects in Canada and the Gulf Coast.

Williams NGL & Petchem Services reported adjusted segment loss + DD&A of $4 million for third-quarter 2014, compared with a loss of $4 million for third-quarter 2013.

Year-to-date 2014, Williams NGL & Petchem Services reported adjusted segment loss + DD&A of $15 million, compared with a loss of $7 million year-to-date 2013.

Guidance

In addition to the third-quarter 2014 dividend increase, Williams also is affirming dividend-growth guidance of approximately 15 percent annually – from the higher third-quarter 2014 base – through 2017 with planned dividends of approximately $1.96 in 2014, $2.46 in 2015, $2.82 in 2016, $3.25 in 2017. The company expects continued strong dividend growth beyond the guidance period. Assuming the merger closes in January 2015, Williams expects excess cash flow available after dividends of more than $300 million for the two-year period 2015 through 2016. The expected quarterly increases in Williams’ dividend are subject to quarterly approval of the company’s board of directors.

Williams’ current guidance for earnings, cash flow and capital expenditures are unchanged from guidance issued in July 2014; however, this guidance does not reflect the effects of the merger agreement announced Oct. 26, 2014.

Key elements of the merged MLP’s financial guidance were disclosed along with the merger announcement and are as follows:

  • 2015 adjusted EBITDA of approximately $5 billion.
  • Pay regular cash distribution during 1Q 2015 in the amount of $0.85 per unit (assuming that the merger closes before the distribution record date).
  • Cash distribution per limited partner unit for 2015 of $3.65.
  • Best-in-class 10 to 12 percent annual distribution growth in each of 2016 and 2017 and strong growth beyond.
  • Distribution coverage is expected to be at or above 1.1x or an aggregate of $1.1 billion of excess cash flow through 2017.
  • Strong investment-grade credit ratings with limited equity needs in current business plan.

The merged MLP expects to provide additional consolidated guidance following the completion of the merger, which is expected in early 2015.

Adjusted segment profit + DD&A for Williams Partners for 2014 includes an assumption of a full recovery of property damage and business interruption insurance proceeds related to the Geismar incident as well as the successful restart of the Geismar plant in November 2014. Williams Partners has $500 million of combined business interruption and property damage insurance related to the Geismar incident (subject to deductibles and other limitations). Risks associated with the expected full recovery of $500 million in insurance proceeds related to the Geismar incident could result in full-year 2014 adjusted segment profit + DD&A that is below the guidance range. In the second quarter, the insurers paid $50 million of the most recent claim-payment request of $200 million and the total insurance receipts to-date are $225 million. The insurers continue to evaluate Williams Partners’ claims and have raised questions around key assumptions involving our business-interruption claim. As a result, the insurers have elected to make a partial payment pending further assessment of these issues. Williams Partners continues to work with insurers in support of all claims, as submitted, and is vigorously pursuing collection of the remaining $275 million insurance limits.

Williams Partners, in consultation with its independent experts, presented further support for the partnership’s insurance claim to our insurers in September 2014 and have agreed with insurers to non-binding mediation, which is scheduled to begin in late November, in an effort to advance the resolution of the claim.

The assumed expanded plant restart date and repair cost estimate are subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. The assumed property damage and business interruption insurance proceeds are also subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions.

Williams’ current guidance is displayed below. However, the table does not reflect the effects of the merger agreement announced Oct. 26, 2014.

Williams Guidance 2014 2015* 2016*
Dollars in millions
Partnership Cash Distributions to Williams
Williams Partners (1) $ 1,775 $ 2,007 $ 2,283
Access Midstream Partners (1) 288 481 613
Total 2,063 2,488 2,896
Other Items – net (2) (336 ) (242 ) (371 )
Cash Flow Available for Dividends $ 1,727 $ 2,246 $ 2,525
Dividends (1,440 ) (1,851 ) (2,134 )
Cash Flow Available After Dividends $ 287 $ 395 $ 391
Dividends Per Share (3) $ 1.96 $ 2.46 $ 2.82
Coverage Ratio (4) 1.20x 1.21x 1.18x
Capital & Investment Expenditures
Williams Partners $ 3,730 $ 2,450 $ 2,280
Access Midstream Partners 640 1,080 830
Williams NGL & Petchem Services 455 75 320
Other 55 40 40
Total Capital & Investment Expenditures $ 4,880 $ 3,645 $ 3,470
(1) The quarterly cash distributions included in this table are declared and received in the following quarter.

(2) Includes corporate interest, cash taxes and capex partially offset by cash flows from Williams NGL & Petchem Services segment. Additional detail related to these items is available in the quarterly data book at www.williams.com.

(3) Dividend per-share guidance for 2017 is $3.25.
(4) Cash flow available for Dividends / Dividends.
* Guidance does not reflect the effects of the merger agreement announced Oct. 26, 2014.

Third-Quarter 2014 Materials to be Posted Shortly; Q&A Webcast Scheduled for Tomorrow

Williams’ third-quarter 2014 financial results package will be posted shortly at www.williams.com. The package will include the data book and analyst package.

Williams, Williams Partners and Access Midstream Partners plan to jointly host a Q&A live webcast on Thursday, October 30, at 9:30 a.m. EDT. A limited number of phone lines will be available at (888) 882-4672. International callers should dial (719) 325-4746. A link to the webcast, as well as replays of the webcast in both streaming and downloadable podcast formats, will be available for two weeks following the event at www.williams.comwww.williamslp.com and www.accessmidstream.com.